Microsoft to Appeal Another Antitrust Ruling

UPDATED: Microsoft said it will appeal an antitrust decision reached by the Korea Fair Trade Commission (KFTC) Wednesday.

The consumer protection agency found the Redmond, Wash., software giant and Microsoft Korea abused its dominant market position when it bundled Windows Media Player (WMP) and MSN Messenger to the Windows operating system, as well as Windows Media Services to the Windows Server operating system.

The KFTC is fining Microsoft nearly $32 million and ordering the company to un-bundle the software from its operating system within the next six months.

The KFTC ruled that Microsoft practices have eliminated competition and exacerbated its monopoly position in the media server, media player and instant messaging markets.

The ruling added that the practices raised the entry barrier of the tying product market, specifically Windows Server and PC operating systems, which led to restriction of market competition and obstruction of consumer welfare.

The ruling urges Microsoft to “bear in mind that its market position asks for a corresponding responsibility.”

Regulators told Microsoft it has 180 days to un-bundle WMS from the Server operating system for its violations of the Monopoly Regulation and Fair Trade Act.

Furthermore, the company is required to ship two different versions of Windows in the next six months: one version stripped of WMP and MSN Messenger and a second with a “Media Player Centre” and “Messenger Centre” with links to competing services, with the competing services to be determined by a supervisory board.

Microsoft will also need to send existing South Korean Windows users a CD with Media Player Centre and Messenger Centre, or provide the new software as an Internet update.

The software giant disagreed with the ruling, maintaining the company operated within Korean law, and it intends to appeal the decision.

“Microsoft’s integration of instant messaging and media player functionality in Windows has created great value for consumers and opportunities for Korean developers who write applications that run on Windows and create devices for Windows,” the company said in a statement.

“Competition in these technologies in Korea has been, and remains vibrant with many new Korean companies successfully offering digital media and instant messaging choices for Korean consumers,” the statement continued. “This decision could have the effect of chilling innovation in Korea.”

South Korean authorities pointed to numbers that showed a jump in Microsoft’s market share in media software after it bundled the software to its operating system, which has 99 percent market share in the country.

Before bundling, Microsoft’s WMP market share in December 2000 was 39 percent compared to Real Network’s 37 percent. After it was bundled with the Windows OS, WMP’s market share jumped to 60 percent, while Real sunk to 5 percent.

Authorities also saw the market share on local instant messaging (IM) services Daum Messenger and Nate-On Messenger drop after MSN Messenger was bundled with the OS.

Microsoft’s bundling practices have landed the company in trouble throughout the world.

Last year, the European Union Competition Commission ruled Microsoft stifled competition bundling WMP with the operating system and imposed a $613 million fine.

Microsoft filed an appeal to that decision, as well.

The U.S. Department of Justice settled antitrust charges against the company in November 2001 for its bundling practices, though the agreement ultimately didn’t prevent Microsoft from tying its software to the operating system.

The Justice Department believes code removal-remedies, such as those decided upon by the KFTC ultimately harm innovation and consumers, which is why its settlement focused on prohibiting Microsoft from blocking competitive products on the Windows platform.

“Sound antitrust policy should protect competition, not competitors, and must avoid chilling innovation and competition even by ‘dominant’ companies,” J. Bruce McDonald, the DoJ’s deputy assistant attorney general for the antitrust division, said in a statement Wednesday. “Furthermore, we believe that regulators should avoid substituting their judgments for the market’s by determining what products are made available to consumers.”

Having Microsoft sell an operating system stripped of WMP or MSN Messenger might not have the effect the KFTC is hoping for. One of the conditions in the EU ruling was similar in nature. Earlier this year, Microsoft began selling a version of Windows that doesn’t include WMP, which Microsoft calls Windows XP “N”.

Stacy Drake, a Microsoft spokeswoman, said sales of Windows XP N have been limited, though she wouldn’t say how many units have been sold.

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